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Understand Your Credit Report and Build Good Credit

 
Understand And Read Your Credit Score
 

What Does Your Credit Score Mean?

Have you ever noticed that three-digit number that comes up anytime you try to buy a new car, rent an apartment, or even apply for a credit card? That’s your credit score.

Before banks and credit unions write you a check for a new car or approve you for a credit card, they need to see that you have a proven history of paying back any amount of money you borrowed. That’s what your credit report is made up of.

In this article, we’ll help you better understand your credit score and credit report. We’ll also provide you with clear-cut tips to improve your credit score.

What Makes up Your Credit Score?

There are five common factors that make up your credit score:

  • Payment history: 35%

  • Amounts owed (Credit usage): 20%

  • Type of credit (Credit mix): 15%

  • Credit history: 10%

  • New credit accounts: 10%

FICO (Fair Isaac & Co.) created the widely-used credit score model ranging from 300-850. The higher your credit score, the more “creditworthy” you look to potential lenders when you want to open a new credit account. The following list represents categories of credit scores from poor to excellent:

  • Poor: 300-579

  • Fair: 580-669

  • Good: 670-739

  • Very Good: 740-799

  • Excellent: 800-850

A low credit score won’t always prevent you from getting a credit card or moving into a new apartment. But you may end up with a higher interest rate or have to pay a security deposit before you can move in.

How to Read Your Credit Report

Your credit report is a detailed summary of all your credit accounts. Lenders use this information to determine your “creditworthiness,” or ability to repay the money you’ve borrowed over time. That’s why it’s important to check your credit report regularly for accuracy.

There are three major credit bureaus that collect and update your credit history:

  • TransUnion

  • Experian

  • Equifax

Each bureau has a different model that could result in you having three different credit scores. You can monitor your credit history by requesting a free credit report every 12 months!

How to Improve Your Credit Score

You know by now that your credit score determines how much you’ll pay for credit. A higher score earns you better rates from lenders. When your credit report includes a good mix of credit accounts (car loans, credit cards, mortgages, etc.) with a record of on-time payments, you’ll benefit in the long run.

Here are four strategies for boosting your credit score:

Make payments by their due date

Remember that payment history makes up 35% of your FICO credit score. You’re risking late fees, a hit to your credit score, or even legal action from your lender if you fail to make your payments on time.

Consider signing up for automatic payments each month to ensure you won’t miss any payments.

Pay down revolving debt (credit card) balances

Outstanding balances on credit cards or lines of credit can hurt your credit score. It’s recommended that you keep your balance below 30% of your available credit limit.

Pay down ALL your balances

Amounts owed on credit accounts make up 30% of your FICO score. Lenders see you as a high-risk borrower if you have a large number of accounts with a balance owed.

The solution? Pay off smaller credit balances as soon as you can. 

Only seek new credit when you need it

Numerous inquiries and new lines of credit could make you appear even riskier to lenders. Building good credit and a good credit score takes time and discipline.

Other tools to help you on your way to building a good credit score:

  • Having an emergency savings account can help you avoid borrowing for unexpected expenses like a major car or home repair

  • Having a good budget and spending plan helps to manage your regular monthly expenses and avoid surprises. It will also help you save money to buy a house or put a down payment on a new car

Improve your credit score in your area

Growing your credit score doesn’t have to be hard. Lower your monthly payment and get your credit history on track with a personal loan from NAE FCU.

We can approve you for personal loans starting from $500.00, but only when you become a member. Click the button below, and we’ll help you make arrangements to become a member.

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